M/s. Viswabharathi Textiles (P) Ltd., Tiruppur V. ITO, Tiruppur

ITA 778/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51965 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 28-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAMESH
• Assessee Lawyers: S SRIDHAR
• Section: 143(3); 115JB; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 778/MDS/2011 (ASSESSMENT YEAR : 2006-07) M/S VISWABHARATHI TEXTILES P. LTD. VBT HOUSE 4/144, BHARATHI NAGAR VEERAPANDI, TIRUPUR 641 605 PAN : AAACV 7209 B (APPELLANT) VS. THE COMMISSIONER OF INCOME TAX - III COIMBATORE. (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR RESPONDENT BY : SHRI K. RAMESH, CIT DR. DATE OF HEARING : 12.10.2011 DATE OF PRONOUNCEMENT : O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY ASSESSEE FOR THE ASSESS MENT YEAR 2006-2007 AGAINST THE ORDER DATED 23.02.2011 OF COM MISSIONER OF INCOME TAX -III, COIMBATORE. I.T.A. NO. 778/MDS/11 2 2. THE ONLY ISSUE INVOLVED IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN HOLDING TH AT THE COMPANY IS LIABLE OF MAT U/S 115JB OF THE INCOME-TAX ACT, 1961 [IN SHORT, THE ACT] IN THE YEAR IN WHICH IT CEASES TO BE A SICK IN DUSTRIAL COMPANY WITHIN THE MEANING OF SECTION 3(1)(O) OF THE ACT. 3. THE FACTS OF THE CASE AS STATED BY THE LD. CIT A RE THAT THE ASSESSEE HAS REDUCED THE ENTIRE BOOK PROFIT OF RS. 30,83,78,113/- BEING PROFIT FROM SICK UNIT AND ADMITTING NIL INCOM E U/S 115JB OF THE ACT. THE SAME IS UNTENABLE BECAUSE THE ASSESSE E COMPANY IS NOT A SICK INDUSTRIAL COMPANY FOR THE YEAR ENDING 3 1.3.2006 AS THE NET WEALTH OF THE COMPANY [RS. 8,28,87,480/- IS MOR E THAN THE ACCUMULATED LOSS OF RS. 8,19,99,082/-]. FURTHER, AS PER ORDER DATED 8.5.2006, THE BIFR HAS DISCHARGED THE COMPANY FROM THE PURVIEW OF SICK INDUSTRIAL COMPANY. THEREFORE, THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT FINALIZED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDING TO THE LD. CIT, DURING THE FINA NCIAL YEAR 2005- 06 RELEVANT TO ASSESSMENT YEAR 2006-07, THE NET WEA LTH OF THE I.T.A. NO. 778/MDS/11 3 COMPANY BECAME POSITIVE AND NO LONGER CONSIDERED AS A SICK INDUSTRIAL COMPANY WITHIN THE MEANING OF SECTION 3( 1)(O) OF THE SICA ACT. THEREFORE, THE COMPANY CANNOT BE CONSIDERED AS SICK INDUSTRIAL COMPANY AND CONSEQUENTLY THE ASSESSEE WAS NOT ELIGI BLE FOR EXEMPTION FORM MAT U/S 115JB OF THE ACT AND THAT TH E ASSESSEES CASE DOES NOT FALL WITHIN THE PURVIEW OF CLAUSE (VI I) TO EXPLANATION (1) OF SUB-SECTION (2) OF SECTION 115JB OF THE ACT. 4. THE LD. A.R. OF THE ASSESSEE ARGUED THAT CLAUSE (VII) TO EXPLANATION (1) OF SUB-SECTION (2) OF SECTION 115JB OF THE ACT ALLOWS THE PROFITS OF THE SICK INDUSTRIAL COMPANY TO BE RE DUCED FROM BOOK PROFIT UPTO THE ASSESSMENT YEAR IN WHICH THE NET WO RTH OF THE COMPANY IS EQUAL OR EXCESS OF ITS ACCUMULATED LOSSE S. AS THE NET WORTH OF THE COMPANY INCREASED THE ACCUMULATED LOSS ES IN THE CURRENT FINANCIAL YEAR, THEREFORE, THE BOOK PROFIT OF THE CURRENT FINANCIAL YEAR WAS TO BE ALLOWED DEDUCTION WHILE CO MPUTING THE MAT U/S 115JB OF THE ACT. I.T.A. NO. 778/MDS/11 4 5. ON THE OTHER HAND, THE LD. D.R. SUPPORTED THE O RDERS OF THE LD. CIT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE WAS A SICK INDUSTRIAL COMPANY U/S 17(1) OF THE SICK INDUSTRIAL COMPANY [SPECIAL PROVISIONS] ACT, 1985 UPTO ASSESSM ENT YEAR 2006- 07. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION , I.E., 2006-07, THE NET WORTH OF THE ASSESSEE COMPANY BECAME EQUAL TO OR EXCEEDED THE ACCUMULATED LOSSES. ON THE ABOVE FACT S, THE ASSESSEE CLAIMED DEDUCTION UNDER CLAUSE (VII) TO EXPLANATION (1) OF SUB- SECTION (2) OF SECTION 115JB OF THE ACT FOR COMPUTI NG BOOK PROFIT FOR THE ASSESSMENT YEAR 2006-07, WHICH WAS ALSO ALLOWED BY THE ASSESSING OFFICER. 7. THEREAFTER, THE LD. CIT INITIATED PROCEEDINGS U/ S 263 OF THE ACT. THE LD. CIT HAS OPINED THAT AS THE ASSESSEE I S NO MORE A SICK COMPANY DURING THE ASSESSMENT YEAR 2006-07, DEDUCTI ON CLAUSE (VII) I.T.A. NO. 778/MDS/11 5 TO EXPLANATION (1) OF SUB-SECTION (2) OF SECTION 11 5JB OF THE ACT IS NOT ALLOWABLE TO THE ASSESSEE COMPANY. THE ASSESSE E BEING AGGRIEVED BY THE AFORESAID ORDER U/S 263 OF THE ACT , IS IN APPEAL BEFORE US. WE FIND THAT THE RELEVANT CLAUSE READS AS UNDER: VII) THE AMOUNT OF PROFIT OF SICK INDUSTRIAL COMPAN Y OF THE ASSESSMENT YEAR COMMENCING ON AND FROM THE ASSESSME NT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SAID COM PANY HAS BECOME SICK INDUSTRIAL COMPANY UNDER SUB SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES [SPECIAL PROVISIONS] ACT, 1985 [1 OF 1986] AND ENDING WITH T HE ASSESSMENT YEAR DURING WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. 8. THUS, A PERUSAL OF THE AFORESAID CLAUSE SHOWS TH AT DEDUCTION UNDER THE SAID CLAUSE IS PERMISSIBLE ON AND FROM TH E ASSESSMENT YEAR IN WHICH THE COMPANY HAS BECOME SICK AND ENDIN G WITH THE ASSESSMENT YEAR DURING WHICH NET WORTH OF THE SAID COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. IN OTHER WORDS, THE DEDUCTION SHALL END WITH ASSESSMENT YEAR DURING WHICH NET WORTH OF THE COMPANY BECOMES POSITIVE. THUS UP TO THE ASSESSMENT YEAR IN WHICH THE NET WORTH BECAME POSIT IVE OF A SICK COMPANY, THE DEDUCTION IS PERMISSIBLE. ONLY FOR AS SESSMENT YEAR I.T.A. NO. 778/MDS/11 6 SUBSEQUENT TO SUCH ASSESSMENT YEAR IN WHICH THE NET WORTH HAD BECOME POSITIVE DEDUCTION UNDER CLAUSE (VII) IS NOT PERMISSIBLE. 9. IN VIEW OF THE ABOVE PROVISIONS OF LAW, IN OUR C ONSIDERED OPINION, THE LD. CIT WAS NOT JUSTIFIED IN DENYING D EDUCTION TO THE ASSESSEE UNDER CLAUSE (VII) TO EXPLANATION (1) OF S UB-SECTION (2) OF SECTION 115JB OF THE ACT FOR THE YEAR UNDER CONSIDE RATION. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) AN D ALLOW THE APPEAL OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 14 TH OCTOBER, 2011. SD/- SD/- (GEORGE MATHAN) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 14 TH OCTOBER, 2011. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), CHENNAI (4) CIT, CHENNAI (5) D.R. (6) GUARD FILE